Saturday, November 2, 2013

The Owner Home Financing Low Down - Be Careful of One of Its Pitfalls!

This situation arises when you as the buyer ask the seller of the house to help you finance your payment. In other words, you ask the seller to give you money to pay them back! Sounds a little complicated, but in some cases it works.There is one glaring pitfall many borrowers make when going into one of these loans, and we'll get to that in a minute... first we must go over some basics of this type of loan. Owner home financing usually occurs when the seller doesn't need the money for the home they are selling right away. They might have another home or extra money saved, and can afford to take the loss of the house by essentially giving it to you for free up front, and getting paid back with interest over time.This type of loan is a private loan has its advantages in lower closing costs, a more negotiable interest rate and repayment schedule. As this is a private loan, the initial conditions are more negotiable as compared to working through a lender or broker. With these types of loans, the seller will normally require a PMI (private mortgage insurance) policy to protect themselves against a default.So what is the pitfall? Because this type of loan is private, many borrowers forget to get the home professionally appraised (because it is not 'required' like it would be at a bank). It is so important before getting a seller financing loan that the property is appraised so that you do not OVERPAY on the property. You must know the value of the property through the eyes of a professional to make sure you don't overpay for the house by taking an overly priced loan.It is important that everything is established and written out in black and white during negotiations between the buyer and seller.